Frequently Asked Questions about IOLTA
WHAT IS IOLTA? IOLTA is an acronym for Interest On Lawyers’ Trust Accounts. Under IOLTA, client funds that cannot earn net interest (after deducting transaction and administrative costs and bank fees) for the client are deposited in an interest bearing demand trust account. Interest earned by pooling these funds in an IOLTA trust account is forward to the OBF by the financial institution where the account is held. Client or third party funds that are capable of earning net interest for the client or third party may not be placed in an IOLTA trust account.
HOW DO I ENROLL IN IOLTA? Complete and print the IOLTA Compliance Statement Form for each IOLTA trust account that will be established or existing trust account to be converted to IOLTA. For complete details, visit our Easy IOLTA Enrollment page.
WHERE DOES THE MONEY GO? IOLTA funds help to support civil legal aid services for the poor and elderly, provide greater access to justice, provide public law-related education programs, high school mock trial programs, advocacy programs and legal services for abused, neglected, and deprived children, and many other vitally needed law-related charitable programs and activities throughout Oklahoma.
WHO PARTICIPATES? All Oklahoma Bar Association members and their law firms that practice within the state of Oklahoma and hold funds of clients or third parties in connection with a representation are required to participate in the IOLTA program. Attorneys that do not handle client trust funds are not required to establish an IOLTA trust account.
WHICH OF MY LAW PRACTICE ACCOUNTS MUST BE ESTABLISHED AND MAINTAINED AS IOLTA TRUST ACCOUNTS? All general or pooled client trust accounts must be established and maintained as interest-bearing IOLTA trust accounts, interest from which is remitted to the OBF IOLTA program. General or pooled client trust accounts are those accounts that hold nominal or short-term deposits of funds of clients or third parities.
WHAT FUNDS QUALIFY? Funds of clients or third parties that are nominal in amount or to be held for short periods of time must be placed in an interest bearing trust account with the interest going to the OBF. The tax identification number of the OBF will be assigned to the IOLTA trust account as the sole beneficiary of interest earned.
WHAT IS NOMINAL? Attorneys should consider whether the client or third party funds could be invested to provide a positive net return or benefit to the client, taking the following factors into consideration: a) the amount of interest the funds would earn during the period the funds are expected to be deposited; b) the cost of establishing and administering the account, including the cost of lawyer’s services, bookkeeping costs and the cost of preparing any tax reports required for interest accruing to a client’s benefit; c) economic conditions and factors affecting interest rates; and d) the capability of the financial institution to calculate and pay interest to individual clients.
WHAT TYPES OF FUNDS SHOULD GO INTO AN IOLTA TRUST ACCOUNT? Examples of the types of qualified funds placed into trust accounts include but are not limited to the following: retainers received from clients, until they are actually earned; funds which belong in part to the client and in part to the lawyer; funds of the client that are being held for disbursement at a later time; personal injury settlements and awards; deposits required to close property transactions; prepaid court costs. Unless an escrow or client’s trust account is established for the sole benefit of the client, all pooled client trust accounts must be in IOLTA trust account.
WHAT ABOUT FLAT-FEE AGREEMENTS AND “NONREFUNDABLE” AGREEMENTS? The Oklahoma Bar Association Legal Ethics Committee has offered advisory opinions on how attorneys should handle fees. Ethics Opinions are available on the OBA’s website at www.okbar.org.
WHERE SHOULD “NON-IOLTA” FUNDS BE DEPOSITED? Client or third party trust funds that do not meet the nominal or short-term requirements of the IOLTA program under existing Rules of Professional Conduct and other applicable law should ordinarily be placed in a separate trust account that will earn net interest for the client’s benefit. The client’s tax I.D. number should be used on such interest-bearing trust accounts and not that of the OBF.
WHAT IF THE BANK FEES EXCEED THE INTEREST EARNED ON THE IOLTA TRUST ACCOUNT? If an IOLTA trust account is not routinely earning interest greater than the applicable service charges, the attorney should attempt to locate and do business with an IOLTA-friendly bank that has agreed to waive or reduce fees on IOLTA trust accounts due to the charitable nature of the IOLTA trust accounts. OBF maintains a list of IOLTA banks and the bank must also be approved by the OBA Office of the General Counsel. If an IOLTA friendly bank cannot be found in or reasonably near the community where the lawyer’s office is located and the interest earned by the IOLTA trust account is not sufficient to cover the applicable service charges, the attorney should submit an explanatory statement to the OBA with the Trust Accounting Certificate showing justifiable reason for noncompliance with requirements of Rule 1.15, and switch the account to a non-interest bearing account. The certificate of non-compliance must be filed annually with the annual bar dues statement or on-line through the OBA Member Website. Attorneys must notify the OBF and switch the trust account back to an interest bearing IOLTA trust account should conditions change where net interest can be earned as an IOLTA trust account or an IOLTA friendly bank opens reasonably near the community where the law office is located.
WHO PAYS THE SERVICES CHARGES ON IOLTA TRUST ACCOUNTS? Only reasonable applicable service fees may be netted or deducted from interest earned by the IOLTA trust account. Applicable service fees are routine maintenance fees only; banking activity fees continue to be the responsibility of the attorney and/or law firms. A more comprehensive list of permissible service charges may be obtained from the OBF. Service charges directly attributable to the IOLTA trust account are deductible solely from interest earned by the account; the principal of the account cannot be used to pay or offset service charges of any kind. Since IOLTA trust accounts contain client funds held in trust by attorneys, invasion of principal to pay service charges is improper. OBF has successfully negotiated with several banks operating within Oklahoma to waive service fees on IOLTA trust accounts. The OBF urges attorneys and law firms to patronize the IOLTA-friendly financial institutions.
DOES THE IOLTA PROGRAM PAY FOR CHECKS OR DEPOSIT SLIPS? No, the only allowable fees to be netted or deducted from interest earned are reasonable, applicable service fees assessed by the bank. Other fees and charges (e.g. check printing charges, wire transfers, ATM fees, electronic activity fees, and NSF charges) are considered ordinary business expenses of the attorney or law firm and must not be deducted from the interest earned by the account.
HOW IS AN IOLTA TRUST ACCOUNT ESTABLISHED? The attorney or law firm must take a completed “IOLTA Compliance Statement” form to the financial institution where the IOLTA trust account will be maintained. This form directs the financial institution to establish the interest bearing IOLTA trust account. Once the enrollment form is completed and the IOLTA trust account is established, the attorney or law firm must immediately mail or fax a copy of the completed enrollment form to the OBF; the original is to remain on file with the financial institution. Financial institutions that have not previously participated in IOLTA may obtain “Financial Institution Guidelines” from the OBF for more detailed information regarding administration of IOLTA trust accounts and how to be included in the IOLTA-friendly group and financial institutions must be approved by the OBA Office of the General Counsel. Prime Partner Banks are being added to the OBF Website so that attorneys and their law firms will be able to maximize the return while minimizing service costs.
IS ADDITIONAL RECORD KEEPING REQUIRED? Once the account is established there should be no additional record keeping by the attorney or law firm beyond the routine bookkeeping activities associated with the proper maintenance of a client trust account records and the proper filing of the OBA Trust Account Certification information showing compliance with the provisions of Rule 1.15 Safekeeping Property. Attorneys and law firms are required to report all trust account modifications to the Oklahoma Bar Association within thirty-days of the modification and to complete and submit an updated IOLTA Compliance Statement to the Oklahoma Bar Foundation.
Please contact OBF at (405) 416-7070 for participant financial institution information.